There are quite a lot of people who don’t like the word ‘Additionality’. They think it’s another one of those meaningless words invented when the ‘right’ word simply evades us.
But it’s not. In today’s housing crisis, it’s probably the single most important principle in UK Multi or Single-Family Investment.
The government even recognises the principle and describes it as: the extent to which something happens as a result of an intervention that would not have occurred in the absence of the intervention.
There is a slight ambiguity to this statement since it could be construed as meaning any intervention that has an effect creates additionality. That would be nonsense. Perhaps what we should be talking about is ‘Net Additionality’. Or, in housing terms, creating more homes.
And it’s ‘more’ we should be concentrating on. More homes, more neighbourhoods, more opportunities, more regeneration, more affordability, more security. What this means in BTR and SFH terms is bringing forward homes additional to those that exist already.
That might seem obvious, and, ten years ago, it was a principle that the sector emphasised to a government desperate to increase the rate of house building. This is why the sector received the support it did.
So why is this even a discussion point?
In part, it arises from the ‘two great nations separated by a common language’ conundrum. In the US, the descriptors ‘Multi-Family, Single-Family, BTR etc are common parlance. As they are in the UK. But as ‘walking on the pavement’ could have potentially disastrous consequences for a Brit’ in the US, direct comparisons to state-side housing descriptors are equally erroneous; if less fatal.
This is especially relevant to SFH. The US SFH investors model is to acquire single homes, using various algorithmic platforms, refurbish them and rent them out. This has led to significant disquiet amongst individuals in America who accuse the investors of using financial muscle to elbow aside potential homeowners. Irrespective of whether that is a valid argument, and I believe it is, this method of scaling portfolios cannot be said to create net additionality.
I’ve long held the belief that the state of a country’s housing is central to the well-being of the nation and that one shouldn’t be in housing, of any tenure, or in any capacity, unless there is explicit acknowledgement of the deep societal responsibilities inherent in supplying and managing homes. The commoditisation of housing is not compatible with those responsibilities.
This is why net additionality, along with other consumer-centric principles, is so important to the future of the residential investment sector, and recycling existing homes in competition with the public is not.
The shortfall in homes being delivered is having dire consequences in the UK where net migration alone often exceeds the number of homes built each year. Clearly, this is not sustainable. Those consequences are being played out across all tenures and all regions, in the form of affordability and waiting lists.
Sometimes, it is argued that investors buying from housebuilders cannot be creating net additionality. So, let’s look at that for a moment:
In times of feast and strong economic conditions, the principal house builders rarely entertain the blandishments of the investment community and use whatever government stimulus is available to sell to homeowners. So, by and large, the investors work with other counterparties to deliver the scale they need to satisfy their fund, creating net additionality.
In times of famine and a weakened economy, such as today, investors find housebuilders more accommodating. This enables house builders to continue building new homes in the knowledge that there are takers for these homes in the shape of institutional investors. So, normal supply is, largely, sustained during a time when supply would ordinarily be reduced.
I believe housebuilders should take this opportunity to create permanent channels through which homes additional to those usually built can be supplied to the BTR/SFH sector.
Net additionality should be, and in the most part is, a key principle of UK institutional residential investment. It commands the attention of government, both national & local, and does much to relieve the critical housing pressures this country is under. This, in turn, will help affordability.
Net additionality created by our sector does make a real and positive difference in the lives of everyday individuals wanting a home. A positive impact is delivered when we live by the additionality principle. This is our lodestar, and we must always keep it in view.